Happy Canada Day! Canada is celebrating its 150th national holiday today. I hope its citizens enjoy the day and forget the state of the Canadian economy. Ignoring it sounds like the best plan forward. Canadian should forget that their average household debt is 171% of their disposable income. This means they are outspending (by amassing debt) their take-home pay by 71%. Ouch. How is that sustainable?
The Canadians' credit-to-GDP gap has hit a critical error as reported by the BIS. It stands at 14.1 whereas the US is at -7.7. Compare that to Switzerland which holds their level at -46.9. Basically a positive credit-to-GDP gap indicates that the amount of credit used by a country is outpacing its national income.
Now let's add another sobering effect in some of its major cities: real estate bubble. That's right in some cities like Toronto and Vancouver, the housing bubble is crazy. Young working couples cannot afford to save for an outrageous down payment to purchase their first home. It must be very discouraging. This of course, is fueled by very low interest rates (0.5%) as declared by the Bank of Canada. Such low interest rates incentivize individuals to take on more loans and larger mortgages which helps foster asset price increases.
As of May, the unemployment rate is 6.6%, but the labor force participation rate is only 65.8%. That is not optimal. These statistics get to help pay off the $644B debt which amounts to nearly $18,000 per person.
My sincere wish for Canada is to adopt more free market principles which includes less taxation, less regulation and less manipulation. Given that Canadians are quite innovative and hard-working, they can turn this around and on the 200th birthday, they could see a much more prosperous nation.